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Can Intel Build the Cable Company of the Future?

The tech press has invested a lot of hope (and hype) in Apple and the potential for an "iTV" to revolutionize the distribution of video content much the way iTunes and the iPod revolutionized digital music. But there's another player at work on a potentially game-changing TV offering: Intel.

At first blush, it may seem odd that Intel would try to put itself forward as the MSO of the future. Intel has always burnished itself as an enabler of technology, not a consumer media brand. But stepping back, it does start to make more sense. Intel was late to the mobile game, ceding ground to other chip suppliers which it is still struggling to gain back. Intel doesn't want to make the same mistake in the living room. The company has already had some notable successes on this score: Comcast will be rolling out an Intel-based set-top box made by Arris that enables viewers to watch Comcast content on mobile devices and laptops running Intel chips.

But Intel has a bigger appetite than supplying the country's largest cable operator. In fact, it wants to be its own operator.

Unlike Apple, Intel's TV efforts are shrouded in much less secrecy, and some concrete details have emerged to give us a fair degree of confidence as to what the service will look like. And it's ambitious. Intel is banking on computational horsepower and a better set-top box to give it a leg up in the battle for living room. According to the Wall Street Journal, Intel's TV operation will "include a server farm to record every piece of programming aired-local, national and international-and store it for at least three days in the "cloud." With an Intel-designed set-top box, people won't have to own DVRs or even plan to record programs. Switch on the TV in the middle of any show, and a viewer can simply go back to the beginning."

Intel was also said to be planning a set-top box with a built-in camera for better ad targeting. While a public outcry has forced the company to scuttle those plans (at least, for now), Reuters has noted that Intel's big pitch to the content community hinges on its ability, through "proprietary technology," to generate more revenue from interactive ads to offset declines in content licensing fees. Either way, Intel is said to want the service to be live before the end of the year. Speaking at the recent TV of Tomorrow conference, Intel's VP and General Manager Eric Free said the goal was to grow the nascent business to the size of U.S. satellite TV services -- which would put the company in the 15-20 million subscriber range.

But (there's always a but) there's a catch, a potentially fatal yet utterly predictable one: Intel has yet to convince content owners to climb onboard, despite the fact that the company is said to be offering huge premiums for programming (up to 75 more than cable companies pay for the same rights, according to Reuters). One reason networks are holding out is because Intel's traditional TV competition is offering "incentives" to content owners to keep them away (i.e. bribing them). Networks are also not convinced that Intel can really deliver the kind of ad revenue they're promising.

So we are left with a now familiar dynamic in the TV market: the technology is in place to enable a new kind of viewing experience but the content owners are not yet comfortable with the business models. Meanwhile, cable TV continues to lose subscribers and in the most recent quarter, both DirecTV and DISH shed subs. Though IPTV subscriptions continued to grow, they are not growing fast enough to offset the other loses in the traditional pay TV market as a whole.

It may be premature to herald the long-awaited arrival of cord cutting, but if trends continue, content owners may start to rethink the attractiveness of Intel's approach.